On April 9, Tennessee Governor Bill Haslam (R) signed into law Senate Bill 2256 (the legislation), which provides a single sales factor apportionment election for ‘Financial Asset Management Companies’ doing business in Tennessee for both excise and franchise tax purposes. According to a report issued by the Tennessee General Assembly Fiscal Review Committee, there currently are no financial asset management companies located in Tennessee and the legislation is intended to promote such companies to move to the state.
While applicability of the single sales factor election is limited given the narrow definition of financial asset management company, the election along with favorable personal income taxation rules puts Tennessee in the limelight as a low tax state. In a post-federal tax reform era where individual taxpayers have become sensitive to non-deductible state and local taxes, this legislation along with the phase out of the Tennessee personal income tax may be a catalyst for a financial asset management company to start up in or relocate to Tennessee.
Tennessee’s personal income tax regime, known as the ‘Hall Tax,’ is limited to the taxation of interest from bonds and dividends from stock at a rate of 3% for the 2018 tax year. As a result of legislation passed in 2016, the tax is being phased out at 1% per year until it is fully phased out in 2021, when Tennessee will then join the seven other no-income tax states.
Partner, PwC US